'Financial predator' gets record sentence - Winnipeg Free Press 'Financial predator' gets record sentence - Winnipeg Free Press

Saturday, May 19, 2012

'Financial predator' gets record sentence - Winnipeg Free Press

'Financial predator' gets record sentence - Winnipeg Free Press
Jack Wladyka

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Jack Wladyka

The longest fraud sentence in Manitoba legal history was handed down Friday in a Winnipeg courtroom to a "financial predator."

Jack Wladyka, 52, was sentenced to 10 years for swindling more than 20 investors out of $6.3 million over 81/2 years.

The level of Wladyka's deceit was "mind-boggling," Justice Diana Cameron said, accepting the 10-year prison sentence recommended by the Crown and Wladyka's lawyer. The maximum sentence for fraud in Canada is 14 years. Cameron agreed with Crown attorney Don Melnyk Wladyka is a "financial predator."

He took the money of trusting investors -- mostly seniors thinking they were buying guaranteed investment certificates -- and deposited it into his own accounts. He used it to invest in the U.S. where the returns -- and risks -- were higher.

Wladyka made bogus statements showing clients their investment and their rate of return. When a client's investment matured, Wladyka reimbursed them using other clients' money.

From 1998 until 2007, he got away with the elaborate scheme until one astute senior in her 80s called the Steinbach Credit Union at tax time looking for her T5 slip. Rose Rudko wanted the slip showing the $3.3-million GIC she believed Wladyka had invested for her at the credit union.

She didn't receive a T5 slip because there was no Steinbach Credit Union GIC in her name. Wladyka took her money and used it to secure his line of credit at the credit union.

At that time, the Steinbach Credit Union told Wladyka it would no longer allow him to use his Boca Raton, Fla., ViewTrade account as security, court heard.

The U.S. investment firm had stopped sending the credit union statements about the worth of Wladyka's portfolio.

The credit union told Wladyka he had to come up with some other security for his line of credit and he had to secure it before the credit union's annual audit, court heard.

Rudko's concern about her missing T5 got bank regulators and the Manitoba Securities Commission involved. They froze all of Wladyka's accounts. His investments were ravaged when the stock market collapsed. He had to give up his home valued at $500,000, his lawyer Tim Valgardson said.

Wladyka helped all of his clients get reimbursed by providing the insurer for the company he'd worked for with a list of their names and what they were owed, Valgardson said.

Before the economic bubble burst, Wladyka believed he was doing what was best for clients, pooling their money and investing it at a higher rate of return in the U.S., said Valgardson.

Some of his clients knew Wladyka was doing it -- it was just that none of the victims thought it was their money invested in the unsecured, risky pool, he said.

Valgardson said Wladyka had no criminal record and was a longtime volunteer with the Christmas Cheer Board. He pointed to dozens of letters from community groups thanking Wladyka and his former employer, Dundee Wealth Management, for donating Goldeyes tickets to disadvantaged youth.

The judge said Wladyka established a position of trust, then abused it. He lied to clients, who wanted secure investments, not to be a part of Wladyka's playing in a volatile market.

"They wanted low risk. They were right, you were wrong," Cameron told Wladyka. The late Rudko -- a widow and a philanthropist -- spent her last years dealing with the stress and fallout from Wladyka's con, the judge said. Rudko testified before the Manitoba Securities Commission and gave a statement to police.

"To add insult to injury, she had to hire a lawyer" to fight to get her money back before she died in 2009, the judge said.

She made sure Wladyka will do the time and pay for his crime. He's ordered to pay $3.3 million in restitution to Dundee Wealth Management, and almost $2.3 million to TD Canada Trust, for reimbursing the victims for their losses.

"I will do my very best to deal with that when that situation arises," Wladyka told the court quickly and without emotion. His common-law wife, two grown sons and a handful of supporters were in court for his sentencing.

"The situation was devastating for many people and I was the cause of that," Wladyka said.


Forget Facebook; stocks are at serious risk - Marketwatch

By Michael A. Gayed

"A good many dramatic situations begin with screaming." -- Jane Fonda

Something major has changed in the last 48 hours which could result in a "mini-Flash Crash" in stocks if not reversed shortly.

First, some background on this week's writings. On May 14, I put out a piece I wrote Sunday night titled "Is another 'Summer Crash Coming'?" in which I addressed the idea that Marc Faber of the Gloom Boom and Doom Report brought up last week of a 1987-style crash being possible if stocks made new highs in the coming months.

In that article, I specifically looked at the bond-to-stock ratio arguing that "the trend of outperformance [in bonds relative to stocks] isn't as accelerated as it was in the Summer Crash of 2011, and the conditions are nowhere near as similar given that inflation expectations remain elevated." I concluded that the "bear paradox" of low yields in the face of stocks increasing dividends makes any kind of a deep correction a low probability event.

Later that day on Monday, I co-hosted Bloomberg Rewind alongside my colleague Ed Dempsey and discussed the negative narrative, Spring Switch, and many other macro topics. Around the 5 minute, 50 second mark, I noted that there was a "credit spread blowout" that happened early on Monday with junk debt and sovereign debt performing very poorly relative to Treasuries that day.

On Tuesday, I wrote my second major article this week on MarketWatch titled " the Most Important Question in the World ." In that writing, I re-emphasized that I said a "mini-correction" in stocks was likely when I first addressed the idea on April 6, and that my company's ATAC models had largely repositioned our clients out of stocks and into bonds since then. I specifically re-emphasized my bullishness on stocks for 2012, but did state that "should the deflation pulse beat faster, we could be in a much more serious scenario than anyone is prepared for." This piece was published Wednesday morning.

Since Wednesday, on my company's Twitter account (@pensionpartners), I have been stressing how crucial it was to watch junk debt relative to nominal Treasuries (IEF/TLT) intraday. I began seeing some very wild intraday moves, with junk debt prices collapsing (yields spiking) while safer Treasuries were aggressively being bid up (yields dropping). The speed and magnitude of this credit spread widening on Wednesday was indeed meaningful. Thursday, that spread widened even further, in a way that suggests that a credit event may be underway in the U.S. and that contagion is here.

Here we are, 48 hours after the major movement began on Wednesday, and a look at the daily chart of junk debt and sovereign debt /quotes/zigman/1511363/quotes/nls/emb EMB -0.17%  shows that a "crash" may actually be here in credit markets. I say "crash" in quotes because while the price decline may not seem like much, a crash should be defined by how far back in time an investment sends you in its decline relative to a short time frame.

Meanwhile, Treasuries have spiked, with 30-year Treasuries below the panic 3% level. To say that "credit leads the stock market" is too simplistic. It is widening credit spreads which lead risk-aversion, and vice versa. Credit spreads lead equities, not credit.

As an example, take a look below at the intraday one-minute bar charts of the S&P 500 /quotes/zigman/714403/quotes/nls/spy SPY -0.86%   and the SPDR Barclays High Yield Bond ETF /quotes/zigman/1510831/quotes/nls/jnk JNK +0.08% as it appeared on May 6, 2010, the day of the "Flash Crash." Notice that the Flash Crash in the S&P 500 happened over one full hour AFTER junk debt itself had its own Flash Crash (massive credit event). The stock crash was preceded by a credit event which happened before the Dow dropped 1,000 points on May 6, 2010. For a larger chart, visit http://www.pensionpartners.com/marketwatch/flashcrashlarge.PNG .

This should make sense. Despite being rated junk, bonds still have a higher claim on assets in the capital structure than stocks. If junk debt craters in price/rises in yields in a precipitous way, then it would make sense that stocks which have a lower claim on assets should soon follow. This is indeed how May 6, 2010 played out.

In the past 48 hours, the magnitude of the decline of junk debt and sovereign debt relative to Treasuries increasing suggests meaningful credit stress is occurring. The breakdown in junk is nowhere near the magnitude of the decline that happened one hour before the Flash Crash of May 6, 2010, but it still warrants attention. If junk/sovereign debt doesn't stabilize and improve shortly, the odds of a follow-through sudden break in stocks in the U.S. increase substantially.

How does this square with the bear paradox and reflation theme I have addressed time and time again? In this case, I am specifically highlighting something which is a timely observation driven by a sudden change in risk-sentiment in the bond market. If a breakdown can be averted, a significant move higher remains a very real possibility in risk assets. However, reflation now looks like a wounded animal in a post European election world which is waiting for Greece to leave the euro.

In the very short-term, Facebook /quotes/zigman/9962609/quotes/nls/fb FB +0.61%  doesn't matter. Credit spread movement and improvement/deterioration is pretty much THE thing to focus on.

So yes, the move in debt spreads over the last 48 hours has increased the odds of something major to come. If recovery comes soon, I suspect things will be just fine. If not? Then I believe equities could undergo a very serious break reminiscent of the May 6 Flash Crash. Notice that this isn't a prediction, but a statement about how such a scenario could occur if indeed junk debt deteriorates further beyond the last 48 hours, and under the assumption that the magnitude of a decline could lead equities lower.

The most important question in the world may end up being answered soon after all. We remain defensively positioned in bonds, and hope for all our sake's the message of the bond market is wrong.

This writing is for informational purposes only and doesn't constitute an offer to sell, a solicitation to buy, or a recommendation regarding any securities transaction, or as an offer to provide advisory or other services by Pension Partners, LLC in any jurisdiction in which such offer, solicitation, purchase or sale would be unlawful under the securities laws of such jurisdiction. The information contained in this writing should not be construed as financial or investment advice on any subject matter. Pension Partners, LLC expressly disclaims all liability in respect to actions taken based on any or all of the information on this writing.


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